S&P cuts credit rating on Sharp to junk status

The global ratings agency said it downgraded Sharp two notches to “BB+” and warned that the Osaka-based firm was beset by weak cash flow and “deteriorating” market conditions.

“Sharp’s liquidity position has weakened, and the company is highly dependent on short-term borrowings in light of weak internal cash flow and a less favorable funding environment,” S&P said in a statement.

Sharp shares plummeted nearly 13 percent to ￥198 yesterday on uncertainty about the future of a deal that would see Taiwan’s Hon Hai Precision Industry Co (鴻海精密) invest about US$800 million in the Japanese firm. It was the biggest percentage loser on the benchmark Nikkei 225 Stock Average, which declined 1.6 percent.

Hon Hai chairman Terry Gou (郭台銘) did not appear at a scheduled press conference in Sakai, Japan, on Thursday and left the country without announcing the conclusion of a deal to invest in Sharp.

Separately, Dow Jones Newswires reported yesterday that Sharp, which makes a range of consumer products, including Aquos brand electronics, had yet to start mass producing screens for Apple Inc’s next iPhone, because of manufacturing problems. Sharp had planned to start shipping them by yesterday, the report said.

S&P said it expected Sharp’s fortunes to improve in the second half of the fiscal year to March next year, but warned that its current rating was based on sealing the deal with Hon Hai, which makes Apple gadgets in China.

“The ratings also incorporate assumptions that major creditor banks continue to provide Sharp with stable financing and the company does not face serious concerns in refinancing its debt,” it added.

Sharp said it lost about US$1.76 billion in the April-June quarter, while warning of a bigger-than-expected full-year loss. The company has announced a huge overhaul that could see it cut about 15 percent of its global work force.

Sharp, which has seen its mainstay television, LCD and solar panel products struggle, said the job reductions were part of a bid to cut annual fixed costs by ￥100 billion (US$1.27 billion) to shore up its dented balance sheet.

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